ESCO (NYSE:ESE) Reports Strong Q3 CY2025

Engineered products manufacturer ESCO (NYSE:ESE) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 18.1% year on year to $352.7 million. The company’s full-year revenue guidance of $1.29 billion at the midpoint came in 0.8% above analysts’ estimates. Its non-GAAP profit of $2.32 per share was 8.7% above analysts’ consensus estimates.

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Bryan Sayler, Chief Executive Officer and President, commented, “We finished the year strong with another great quarter highlighted by 29 percent sales growth, 100 basis points of Adjusted EBIT margin improvement, and a 30 percent increase in Adjusted EPS from Continuing Operations.

Company Overview

A developer of the communication systems used in the Batmobile of “The Dark Knight,” ESCO (NYSE:ESE) is a provider of engineered components for the aerospace, defense, and utility sectors.

Revenue Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, ESCO grew its sales at a solid 9.7% compounded annual growth rate. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. ESCO’s annualized revenue growth of 10.2% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.

ESCO also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. ESCO’s backlog reached $1.13 billion in the latest quarter and averaged 29% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for ESCO’s products and services but raises concerns about capacity constraints.

This quarter, ESCO reported year-on-year revenue growth of 18.1%, and its $352.7 million of revenue exceeded Wall Street’s estimates by 15.1%.

Looking ahead, sell-side analysts expect revenue to grow 10.6% over the next 12 months, similar to its two-year rate. This projection is noteworthy and suggests the market is baking in success for its products and services.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

ESCO has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, ESCO’s operating margin rose by 4.3 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, ESCO generated an operating margin profit margin of 18.3%, up 1.1 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

ESCO’s EPS grew at an astounding 18% compounded annual growth rate over the last five years, higher than its 9.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into ESCO’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, ESCO’s operating margin expanded by 4.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For ESCO, its two-year annual EPS growth of 30.9% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, ESCO reported adjusted EPS of $2.32, up from $1.46 in the same quarter last year. This print beat analysts’ estimates by 8.7%. Over the next 12 months, Wall Street expects ESCO’s full-year EPS of $6.34 to grow 14.4%.

Key Takeaways from ESCO’s Q3 Results

We were impressed by how significantly ESCO blew past analysts’ revenue expectations this quarter. We were also glad its full-year EPS guidance trumped Wall Street’s estimates. On the other hand, its EPS guidance for next quarter missed. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 4.6% to $220 immediately after reporting.

ESCO may have had a good quarter, but does that mean you should invest right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.